One of the big, big changes in property over the last 20 years is that it is now so easy to find finance for your properties. When I first started 20 years ago, buy to let mortgages had only just come in. Nobody quite knew what they were, or how they worked. And it took a bit of time before it built the momentum that we can see today.
Prior to that, if you were just a private individual who wanted to invest in property it was very, very hard to get any finance, unless you were already very wealthy. And the irony is that if you were very already wealthy, you probably didn’t need to borrow bank finance.
But now, of course, pretty much anybody who wants to get into property probably can. Even people with County Court Judgements can go out and get a buy to let mortgage because there are lenders out there who will lend to them.
There’s plenty of products out there, in fact there are so many products that one of the traps you don’t want to fall in to is trying to work it all out for yourself. I often meet new investors who tell me that they are going to go online and find their borrowing products themselves.
But I strongly recommend that you don’t do that.
At the time of writing there are about 2,000 different buy to let products available, provided by up to around 100 different lenders. And products come and go all the time, and lender’s criteria change all the time.
Unless you are full time in property lending, you cannot keep tabs on that. You cannot know the details of all the products on the market, and you cannot keep up with lender’s changing criteria.
Many of the products are only available if you go through a broker anyway, so you should always use a good broker to source your finance.
One lender’s criterion which can cause a lot of frustration and confusion is the requirement for the property to be habitable, or lettable, before a lender will grant a buy to let mortgage.
Unfortunately, there is no one standard definition of what habitable, or lettable, actually means.
For some lenders it can be that the property needs a significant amount of work doing it (they will want this to be cosmetic, and not structural, so things like putting in a new bathroom and kitchen is fine, but not knocking structural load bearing walls out), but they’ll lend if there’ running water, and a functioning kitchen and/or toilet.
In other words, some lenders are relaxed about lending on a potential buy to let refurb project.
But for other lenders the property has to be almost pristine. They literally expect the property to be lettable from day one. They won’t lend on your nice, little buy to let refurb project.
So, before you make a loan application, you need to talk to your good broker, who will know the criteria of the different lenders, and will make the application to the right lender.
Unfortunately, the story doesn’t end there.
Just to add another level of complexity, each individual valuer will also have a view of what habitable and lettable means, and they will report and make their recommendations on that basis, regardless of what the specific lenders definition is. So, it has been known for a valuer to recommend not lending, or not lending as much, or recommending a sizeable retention, even though the property fell within that lender’s definition of habitable or lettable. Obviously, that can be very frustrating.
If that were to happen, it’s not necessarily the end of the world.
Your good broker might know of an alternative buy to let lender you can make a new application to, in the hopes the lender and valuer might be more amenable, although that will take more time and will add to your costs.
Of you could use an alternative source of finance to the property, like bridging, and then refinance onto a standard buy to let once the refurb is finished.
A good broker should be able to help you with this.
Peter Jones B.Sc FRICS
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